At expiration the put/call calendar long/short will result in long natural shares and short the deferred synthetic shares (conversion arbitrage).
trading volatility
- Thread starter met1989
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At expiration the put/call calendar long/short will result in long natural shares and short the deferred synthetic shares (conversion arbitrage).
Robert Morse
Sponsor
A Romulan Bird of Prey in the Aldebaran sector - which is obviously synthetically equivalent to 16 gutted larks in a pear tree - has multi-dimensional delta and is long both gamma and theta, with zero vega risk as well as credit that is the sum of all the bids and asks on the chain. Be sure to call up your broker and insist on one.
I giggle every time I see someone ask a trader a question and expects a nice answer. I still have nightmares about the hazing I was put through. I learned to shut my mouth and duck when shit came flying at my head... "Thank you sir, may I please have another."
And calendar spreads are not long/short vol. Notional yes, but that ain't how the curve moves.
And calendar spreads are not long/short vol. Notional yes, but that ain't how the curve moves.
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A guy on futures.io recounted how, on his first day on the phone as the only trader for his firm (the one experienced guy they had took off on vacation - 'cause nobody could tell him "no" - and gave him minimal to no training), the other traders smelled blood in the water and were yelling orders at him as fast as they could, with max jargon thrown in. He literally shit his pants from the stress. Fortunately, one of the kinder people in the business went over and gave him a few clues that helped him survive that first day. After that... pretty much nothing phased this guy again.
That's not the first story of this type I'd ever heard by far, and it parallels a lot of (milder, but contextually similar) environments I've run into while learning a bunch of different skills from the "old masters", especially in the military and in the manual trades. Hazings of different sorts are a fairly standard expectation there, and a thin skin is pretty much an absolute disqualification.
I don't see any call for actual rudeness where someone is just trying to learn... but newbies asking questions of professionals really should put in maximum effort to make sure they're not asking trivially stupid questions. There's a pretty broad grey area, but I can understand one hell of a lot of grumpiness and asperity when that effort is noticeably absent.
Can you please elaborate what you mean by this?
Calendar spreads have a net Vega so don't they experience a pnl based on vol shifts?... or from changes in the term structure?
Thanks!
Robert Morse
Sponsor
Depends on the time between your long/short and if it is near an event that is priced in. There is Vega risk in many circumstances.
The term structure doesn't shift (1 for 1), it twists (1,.80,.65,.52....etc) between backwardation, flat, and contango. So you can be -1000 vega mo 2 and long 1550 vega mo 4 = net long 550 vol) but if vol moves, your p+l will probably be close to flat.
Now it can shift at times, but never on a big vol move, and that's all you really need to care about. Little moves are just noise and coin flips. Over time, at high volumes, who cares.
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